VIT25220 - Is it input tax: the option to leave goods wholly outside the business and treat them as wholly private or non-business assets

At the time a business acquires an asset it can decide not to include it within its business. As a result the business cannot recover any VAT incurred on the asset.

A business may wish to do this if:

  • the business use of an asset is minimal; or
  • the amounts of tax involved are insignificant.

However, this option is open to a business whatever the circumstances, as long as the business has some non-business or private use of an asset.

This applies automatically if at the time of acquisition the business does not intend to use the asset at all for business purposes.

This decision has two important consequences.

  1. No VAT is due on the sale and no VAT can be recovered on sale costs if the asset is disposed of.
  2. Once a business has made this choice it cannot revisit the VAT that it incurred on the asset, even if the level of business use later increases. The asset has permanently left the VAT system so far as the business is concerned.

The fact that it has left the asset outside of its business for VAT purposes does not mean that the business cannot use it to make taxable supplies. If it does so and incurs VAT on ancillary services in respect of the goods, such as cleaning or repair maintenance, then this VAT is recoverable subject to the normal rules.